Loss and scope of duty in professional negligence claims: Afan Valley Ltd v Lupton Fawcett Ltd

A recent Court of Appeal decision provides a useful illustration of the application of the principles of loss & scope of duty in professional negligence claims.

“It is a principle of the law of negligence that a defendant found to be in breach of a duty of care is not liable for all the losses which the claimant has sustained as a result of acting on their advice, but only for those within the scope of their duty.”

In Afan Valley Ltd & Ors v Lupton Fawcett Ltd [2024] EWHC 909 (KB), the Court of Appeal dismissed the Claimants’ appeal against reverse summary judgment and strike out on their substantial professional negligence claim against a firm of solicitors, Lupton Fawcett. On 4 March 2026, the Claimants made an application to the Supreme Court for permission to appeal this decision.

Background

The Claimant companies were used as special purpose vehicles (“SPVs”) in connection with investment schemes (“Schemes”) promoted to the public, under which investors were offered the opportunity to buy long leasehold interests in individual rooms in hotels, care homes or student accommodation.

Lupton Fawcett had been instructed by the Claimants to advise on whether the Schemes were collective investment schemes (CISs) under the Financial Services and Markets Act 2000 (“FSMA”). If so, then the Schemes would fall within the FSMA general prohibition under which no person may carry on regulated activity unless they are authorised or exempt. The Claimants were not so authorised, meaning that adverse consequences would follow if the Schemes were deemed CISs.

The Claimants, which were all in insolvent liquidation and acted by their joint liquidators, argued that as a result of Lupton Fawcett’s failure to advise earlier that the Schemes were CISs, they had incurred significant liabilities of over £60m. The principal loss claimed stemmed from the Claimants’ obligation to return investors’ payments to them. Had the Claimants been advised earlier that the Schemes were CISs, they argued, then they would not have received investor money and would not have incurred FSMA liabilities. Also relevant was the Claimants’ further argument that none of the Schemes made a profit; they were in fact a “Ponzi” scheme, dishonestly operated by a shareholder/director of one of the claimant companies.

Lupton Fawcett applied to strike out, or for reverse summary judgment on, the claim against it on the basis that even if negligence were established then the Claimants would be unable to prove any recoverable loss. Primarily, this was on the basis of a “£ in £ out” argument; the Claimants had received investment funds in, which set off the requirement to return investors’ money.

The High Court struck out the claim and granted summary judgment against the Claimants, who then appealed.

Appeal

The crux of the appeal was whether the Judge was wrong to decide that the Claimants’ losses were not attributable to Lupton Fawcett’s alleged negligence. The Court of Appeal dismissed the appeal, ruling that even if the firm’s advice had been negligent as the Claimants alleged, they could not demonstrate any recoverable loss falling within the scope of the solicitors’ duty of care.

Scope of duty

The leading Supreme Court decision in Manchester Building Society v Grant Thornton LLP [2021] UKSC 20, [2022] AC 783 sets out a structured framework for the resolution of claims for damages for negligence, as follows:

“When a claimant seeks damages from a defendant in the tort of negligence, a series of questions arise:

1. Is the harm (loss, injury and damage) which is the subject matter of the claim actionable in negligence? (the actionability question)
2. What are the risks of harm to the claimant against which the law imposes on the defendant a duty to take care? (the scope of duty question)
3. Did the defendant breach his or her duty by his or her act or omission? (the breach question)
4. Is the loss for which the claimant seeks damages the consequence of the defendant’s act or omission? (the factual causation question)
5. Is there a sufficient nexus between a particular element of the harm for which the claimant seeks damages and the subject matter of the defendant’s duty of case as analysed at stage 2 above? (the duty nexus question)
6. Is a particular element of the harm for which the claimant seeks damages irrecoverable because it is too remote, or because there is a different effective cause (including novus actus interveniens) in relation to it or because the claimant has mitigated his or her loss or has failed to avoid loss which he or she could reasonably have been expected to avoid? (the legal responsibility question)”

The Court of Appeal applied these principles in considering the Claimants’ three grounds of appeal, which were explained in the judgment as follows:

1. The “£ in £ out” analysis was challenged on the basis that once an investment was completed, the Claimants paid out commission together with legal and professional fees, and so had suffered loss over and above any liability to refund investors;
2. The Claimants had also incurred necessary expenditure in the early years of operating the Schemes; and
3. The liability incurred by the Claimants under FSMA was not just to repay the investors the amounts received but also to pay them compensation.

Applying the Manchester Building Society principles, the Court of Appeal held that Lupton Fawcett was not responsible for the losses suffered; and that such losses did not fall within the risks of harm against which Lupton Fawcett’s duty of care was intended to guard.

Lupton Fawcett’s duty of care concerned the impact of FSMA if the Schemes were CISs. More specifically:

1. The payment of commissions and fees had nothing to do with whether the Schemes were CISs or not. That the Claimants might make these payments did not mean that the risks of their doing so were within the risks of harm for which Lupton Fawcett could be responsible.
2. The same goes for the claim for expenditure incurred in operating the Schemes. In a counterfactual world in which the Schemes were not CISs, then they would have been operated in the same way, incurring the same expenditure.
3. The potential FSMA compensation did, in principle, fall within the scope of Lupton Fawcett’s duty. However – had the Schemes not been CISs then, whilst the potential FSMA compensation may have been avoided, the Schemes would still have been run as a Ponzi scheme, ultimately failing, and investors would still have had valid claims in contract or tort against the Claimants which were at least as good as any FSMA compensation claim.

Conclusion

This judgment reinforces and illustrates, in practice and on a number of bases, the principle that solicitors’ liability is limited to losses which fall within the scope of the legal advice that they are instructed to provide. This decision will be of interest to professionals and insurers alike, offering a clear example of how the established scope of duty principles in Manchester continue to be applied. Watch this space for further updates as we continue to monitor the Claimants’ application to the Supreme Court for permission to appeal.

Burges Salmon has extensive experience acting in high-value and complex professional negligence matters. If you would like to discuss this further, please get in touch with Caroline Brown, Christina Evered, or your usual Burges Salmon contact.